Condominium
A condominium is a form of property ownership where the buyer holds title to the interior airspace of an individual unit while sharing ownership of the building structure, land, and common areas with all other unit owners through a homeowners association. Mortgage financing for condominiums requires project-level approval under most loan programs.
What This Means
Ownership Structure
In a condominium, each owner holds title to the airspace within their unit boundaries. The building structure, roof, exterior walls, land, and shared amenities (lobbies, pools, elevators, parking structures) are owned collectively by all unit owners as common elements. The homeowners association manages these shared assets and collects monthly dues to cover maintenance, insurance, and reserves. This ownership structure differs from a planned unit development (PUD), where each owner holds title to their individual lot and structure.
Mortgage Implications
Condominium mortgages require the lender to evaluate both the borrower and the condominium project itself. Fannie Mae and Freddie Mac require that the project meet specific eligibility standards covering owner-occupancy ratios, HOA financial health, insurance coverage, commercial space limits, and litigation status. FHA has its own approval process through the FHA condo approval list. Projects that do not meet these standards are classified as non-warrantable and require portfolio or non-QM lending, which typically means higher rates and larger down payments.
Warrantable vs Non-Warrantable
A warrantable condominium meets the project eligibility guidelines set by Fannie Mae and Freddie Mac. Key requirements include at least 50% owner-occupancy, no single entity owning more than 20% of units (in projects with 21+ units), adequate HOA reserves (typically 10% of the annual budget), no pending litigation that could affect the project's financial stability, and commercial space limited to 35% of total square footage. Non-warrantable condos fail one or more of these criteria and cannot be financed through conventional agency-backed loans.
Insurance Requirements
Condo mortgage borrowers need two layers of insurance. The HOA master policy covers the building structure, common areas, and liability for shared spaces. The individual borrower needs an HO-6 policy covering the interior of their unit, personal property, and personal liability. Lenders verify both policies meet minimum coverage requirements before closing. If the HOA master policy has insufficient coverage, the lender may require the borrower to obtain additional gap insurance.